GM Lays Out Its Restructuring/Post Bankruptcy Plan

GM is out with its latest survival plan. Actually, it appears to me to be more of a blueprint of what they would like the company to look like when it emerges from bankruptcy.

Among the proposals to make the company viable are:

Reduce U.S. plants from 47 to 34, cut the workforce by 21,000 to 40,000 and cut the dealer network to 3,605 from 6,246.

Eliminate Pontiac, Hummer and Saturn models. GM would be left with Chevrolet, Cadillac, Buick and GMC.

Internationally it would have a network of alliances and its Opel unit would be sold.

The government would convert $10 billion of its $15.4 billion of advances to equity. It would receive an interest in the company equal to around 50%

Half of the $20 billion it owes the UAW will be paid off with an equity stake equal to about 40% of the company.

Existing shareholders will be diluted down to a 1% ownership.

Bondholders will exchange 90% of their $27 billion in debt for a 10% interest in the company.

According to the company, these cuts would allow it to generate cash as early as next year. The annual level of new car sales assumed in that projection is 10 million units.

This looks like a deal that’s designed to be a non-starter with the creditors. The UAW takes a 50% haircut on its debt for a 40% interest and the bondholders write-off 90% for 10% of the company. In their shoes I’d say see you in court, I can’t do much worse there.

In fact, Fritz Henderson, GM’s CEO, almost seemed to concede the point when he said, “I’m not going to get into what’s fair. That’s for individual bondholders to determine.” He also said that the bond exchange was crucial and while not impossible, that bankruptcy is now more probable.

The prospect of a GM owned and operated by the federal government and its workers makes me shudder. I suspect that it might make a few competitors rather nervous as well. How about “green cars” that pass the politically correct test, produced and financed at a subsidized cost. Want to compete with that?